Pam Has a Job at a Jewelry Kiosk in a Mall

question 6

Multiple Choice

Pam has a job at a jewelry kiosk in a mall. Pam doesn't like to work hard, and it costs her $100 to do so. Pam's employer cannot observe whether Pam works hard or not. If Pam works hard, there is a 75% probability that jewelry profits will equal $400 a day and a 25% probability that jewelry profits will equal $100 a day. If Pam shirks, there is a 75% probability that jewelry profits will equal $100 a day and a 25% probability that jewelry profits will equal $400 a day. Suppose Pam is paid $200 if jewelry profits are $400 a day and $50 if jewelry profits are $100 a day. Pam will _____ because the net gain of _____ from shirking is _____ than the net gain of _____ from working hard.

• A) shirk; $87.50; more; $62.50
• B) shirk; $125; more; $118
• C) work hard; $50; less; $62.50
• D) work hard; $100; less; $250

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